AAEA is an environmental organization founded in 1985 that is dedicated to protecting the environment, enhancing human, animal and plant ecologies, promoting the efficient use of natural resources, increasing African American participation in the environmental movement and promoting ownership of energy infrastructure and resources. We resolve environmental problems through the application of practical environmental solutions.

Thursday, November 01, 2007

Congressional Budget Office Cap & Trade Studies

"Regardless of how the allowances were distributed, most of the cost of meeting a cap on CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline. Those price increases would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households would. In addition, workers and investors in parts of the energy sector—such as the coal industry—and in various energy-intensive industries would be likely to experience losses as the economy adjusted to the emission cap and production of those industries’ goods declined. Because most of the cost of the cap would ultimately be borne by consumers, giving away nearly all of the allowances to affected energy producers would mean that the value of the allowances they received would far exceed the costs they would bear. As a result, that allocation strategy would increase producers’ profits without lessening consumers’ costs. In essence, such a strategy would transfer income from energy consumers—among whom lower income households would bear disproportionately large burdens—to shareholders of energy companies, who are disproportionately higher-income households." (More)

The risk of potentially catastrophic damage from climate change can justifytaking action to reduce that risk in much the same way that the hazards we allface as individuals motivate us to buy insurance.

Although both a tax on emissions and a cap-and-trade system use the power ofmarkets to achieve their desired results, a tax is generally the more efficientapproach.

Under a cap-and-trade program, a key decision for policymakers is whether tosell emission allowances or to give them away.

Policymakers’ decisions about how to allocate the allowances could have significanteffects on the overall economic cost of capping CO2 emissions, as wellas on the distribution of gains and losses among U.S. households.

If the government chose to sell emission allowances, it could use the revenue tooffset the disproportionate economic burden that higher prices would impose onlow-income households.

The budgetary treatment of a federal cap-and-trade system for CO2 emissions isan important topic that has received relatively little attention. (More)